Happy birthday Child Trust Funds!

Category: Savings
Date: 4/17/2007

We all want our children to have the best start in life, and it's never too early to start saving for when they are older. If you are one of the millions of parents in the UK today with a child under 5, have you taken advantage of the Child Trust Fund scheme? Child Trust Funds are great ways to build a nest egg for your child when they turn 18 whilst shielding the interest from Gordon Brown's dreaded taxmen. Furthermore, they can be rolled over into an Individual Savings Account (ISA) when they mature, so there's even more reason to take advantage of them.

If your child was born after 1 September 2002, the Government will give you a £250 voucher, rising to £500 in the case of low-income families to pay into an approved scheme. This is then topped up when they reach seven with an additional £250 or £500. Over 2.6 million Child Trust Fund savings accounts have been opened over the past two years, but according to the Government, one million of all vouchers issued are still yet to be invested by parents – are you one of them?

There are two different types of Child Trust Fund accounts:

• Savings accounts
• Equity-based investments

Both are easy to open with a high street bank or building society, but the one you choose will depend on your attitude to risk.

According to Moneyfacts' latest survey on Child Trust Funds, just by investing the voucher in a cash-based savings account when the scheme was first launched two years ago, £250 would now be worth over £275. By the time your child reaches 18, £250 could stand at over £1,320. Topping up Child Trust Funds will also make a considerable difference. Research by Children's Mutual has shown that if you had topped up a Child Trust Fund with £24 a month since launch, your child's savings fund would now be worth well over £1,000.

A word of warning: Stashing away all of your child's savings into a Child Trust Fund may not be a sensible move. Every penny will belong to them when they turn 18, and they may decide to waste it all on a flashy car or two weeks in the sun. Also, who knows what the Government of the day will decide to do in 2020? So make sure you invest your child's vouchers, but if you save regularly into a tax-free ISA you'll always have control.

Remember that you also have a variety of other options. Your child is free to open a cash ISA of their own when they turn 16, and there's currently a wide range of children savings accounts available. Just by putting away a small amount each and every month will build up nicely - many children savings accounts have attractive rates of interest and are also very easy to open. See our Best buys for:

• Childrens' savings (high street)
• Childrens' savings (other)

Don't forget that many banks and building societies also offer children savings accounts which can teach them all about banking, and also gives them freebies such as toys, birthday cards and high street vouchers. Whatever savings methods you choose for your little one, the key is to act now while they are still young. Teaching your child about the value of saving and how money works is an important lesson, so why not start today.